post-mediation-report-to-client.docx

1005-00005 · Nexford Industrial Holdings · Correspondence/Client

post-mediation-report-to-client.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7800 Facsimile: (312) 555-7801 www.calderwoodharkness.com

August 4, 2023

VIA ELECTRONIC MAIL — PRIVILEGED AND CONFIDENTIAL

Deborah Whitfield, Esq. General Counsel Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085

Martin Schaeffer Chief Executive Officer Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085

Diana Calloway Principal Marlowe Asset Management Bluff Capital Partners, LP 875 North Michigan Avenue, Suite 3600 Chicago, Illinois 60611

Re: Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division

Calderwood & Harkness Matter No. 1005-00005

Post-Mediation Report

ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

This letter and all enclosures and attachments hereto are protected from disclosure by the attorney-client privilege, the work-product doctrine, and all other applicable privileges and protections. This communication is intended solely for the use of the addressees identified above. Any dissemination, distribution, copying, or other use of this communication or the information contained herein by any person other than the intended recipients is strictly prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.

I. Introduction and Purpose of This Letter

Dear Ms. Whitfield, Mr. Schaeffer, and Ms. Calloway:

We write to report on the outcome of the full-day mediation held on Wednesday, August 2, 2023, before the Honorable Catherine Lindström (Ret.) at the Great Lakes Dispute Resolution Center, located at 150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606. As you are aware, this mediation was conducted in connection with the above-referenced litigation between Cardinal Peak Industries ("Cardinal Peak" or "CPI") and Nexford Industrial Holdings Inc. ("Nexford" or the "Company"), and was convened pursuant to Section 14.3 of the Master Supply Agreement (MSA-NIH-CPI-2020-001), which mandates pre-litigation mediation in Chicago, Illinois, and provides that Illinois law governs all disputes arising under the agreement.

We are pleased to report that the mediation concluded successfully, resulting in a settlement in principle between the parties. A binding term sheet memorializing the essential terms of the settlement was signed by authorized representatives of both Cardinal Peak and Nexford at the conclusion of the mediation session on the evening of August 2, 2023. The term sheet provides the framework for a formal Settlement Agreement and Mutual Release, which will be reduced to a definitive written agreement in the coming days.

The purpose of this letter is fourfold: (1) to provide you with a comprehensive summary of the material terms of the settlement as reflected in the executed term sheet; (2) to analyze the settlement in the context of the litigation posture and the range of outcomes Nexford faced at trial; (3) to identify certain post-settlement obligations, including a lender notification requirement under Nexford's revolving credit facility; and (4) to outline the specific next steps required to formalize the settlement and bring this matter to a close.

We believe the settlement represents a highly favorable result for Nexford and its stakeholders, and we recommend proceeding expeditiously with the formalization of the agreement on the terms described herein.

II. Background and Litigation Posture Entering Mediation

To provide appropriate context for the settlement analysis, we briefly summarize the procedural history and litigation posture of this matter as it stood at the time of the mediation.

A. Commencement of Litigation and Cardinal Peak's Claims

Cardinal Peak Industries filed its Complaint against Nexford Industrial Holdings Inc. on August 8, 2022, in the Circuit Court of Cook County, Illinois, County Department, Law Division, initiating the action captioned Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471. The Complaint asserted three counts:

Count I — Breach of Contract. Cardinal Peak alleged that Nexford breached its obligations under the Master Supply Agreement (MSA-NIH-CPI-2020-001), executed January 15, 2020, by failing to pay certain raw-material surcharges invoiced by Cardinal Peak during the period from March 2021 through May 2022.

Count II — Unjust Enrichment. In the alternative, Cardinal Peak alleged that Nexford was unjustly enriched by receiving goods manufactured with higher-cost raw materials without paying the corresponding surcharges.

Count III — Account Stated. Cardinal Peak alleged that the invoices submitted during the disputed period, which Nexford received without timely objection, constituted an account stated obligating Nexford to pay the amounts reflected therein.

Cardinal Peak's Complaint claimed a total of $4.73 million in unpaid surcharges. According to Cardinal Peak's invoicing records and the evidence produced during discovery, the total surcharges invoiced during the disputed period of March 2021 through May 2022 amounted to approximately $6.41 million across fourteen months of invoicing. Nexford paid $1.68 million of those invoiced surcharges — amounts corresponding to months where Nexford determined the surcharges were properly calculated and timely noticed. Cardinal Peak claimed the unpaid balance of $4.73 million as damages.

Cardinal Peak retained Dr. Theodore Voss of Pinnacle Economics Group LLC as its damages expert. Dr. Voss submitted his expert report on April 12, 2023, in which he opined that Cardinal Peak's total damages amounted to $5.11 million, consisting of the $4.73 million in claimed principal together with approximately $0.38 million in prejudgment interest calculated at the statutory rate under Illinois law.

B. Nexford's Answer, Affirmative Defenses, and Counterclaim

Nexford filed its Answer and Affirmative Defenses on September 19, 2022, denying liability on all three counts and asserting a series of affirmative defenses grounded in Cardinal Peak's failure to comply with the contractual prerequisites for the imposition of surcharges under Section 7.4 of the MSA. On October 3, 2022, Nexford filed a Counterclaim seeking declaratory relief and the return of $0.21 million that Nexford contended had been overpaid due to Cardinal Peak's improper calculation of certain surcharges during the months for which Nexford had made partial payments.

Cardinal Peak moved to dismiss the Counterclaim on October 24, 2022, arguing that Nexford's overpayment claim was barred by the voluntary payment doctrine and that the declaratory relief sought was duplicative of the defenses raised in the Answer. Judge Margaret Fong denied Cardinal Peak's Motion to Dismiss the Counterclaim on November 14, 2022, finding that Nexford's claims were sufficiently pled and presented justiciable questions of contract interpretation.

C. Discovery and Expert Proceedings

Fact and expert discovery were completed in the spring of 2023. The key discovery milestones relevant to the mediation included the following:

Depositions. Two principal fact witnesses were deposed. Natalie Gunderson, Cardinal Peak's Vice President of Sales and Commercial Operations, was deposed on January 18, 2023. Russell Okonkwo, Nexford's Vice President of Procurement, was deposed on February 7, 2023. Ms. Gunderson's testimony proved particularly significant, as discussed further below.

Expert Reports. Following the exchange of initial expert reports — including Dr. Voss's April 12, 2023 report for Cardinal Peak — Nexford submitted the rebuttal expert report of Dr. Anita Rosenthal of Meridian Bridge Consulting LLC on March 15, 2023. Dr. Rosenthal's report challenged Dr. Voss's damages calculation on multiple grounds and supported Nexford's position that the properly calculated surcharges owed, if any, were substantially below the amounts claimed.

D. Nexford's Three Principal Defenses

The core of Nexford's defense throughout this litigation rested on three independent but partially overlapping grounds arising under MSA Section 7.4, the provision governing the imposition, calculation, and invoicing of raw-material surcharges. These three defenses, which formed the centerpiece of our mediation presentation, were as follows:

(a) Late Surcharge Notices (MSA Section 7.4(a)). Section 7.4(a) of the MSA requires that Cardinal Peak deliver a written Surcharge Notice to Nexford no later than the fifteenth (15th) day of the month in which the surcharge is to take effect, with such notice to include the specific index data and calculations supporting the surcharge amount. Cardinal Peak failed to deliver timely Surcharge Notices for seven (7) of the fourteen (14) disputed months, with delays ranging from three to twenty-seven days. The surcharges attributable to these seven late-noticed months totaled approximately $2.18 million. Notably, Ms. Gunderson acknowledged in her January 18, 2023 deposition that seven notices were delivered after the contractual deadline, although she characterized the delays as immaterial.

(b) Deviation from Exhibit C Surcharge Methodology (MSA Section 7.4(b) and Exhibit C). The MSA's Exhibit C prescribes a specific methodology for calculating surcharges, which requires the use of two published indices: the Ferrous Scrap Index (as published by the Sterling Reach Partners LLC) and the Industrial Energy Cost Index (as published by the U.S. Bureau of Labor Statistics). Discovery revealed that Cardinal Peak had instead used an internal blended cost metric derived from Cardinal Peak's own purchasing records and utility invoices, which did not conform to the published indices specified in Exhibit C. The surcharges affected by this methodological deviation totaled approximately $1.47 million. Ms. Gunderson conceded in her deposition that Cardinal Peak had utilized the internal blended cost metric rather than the published indices for purposes of calculating surcharges during the disputed period, though she maintained that the internal metric produced results "substantially equivalent" to the Exhibit C methodology.

(c) Surcharges Exceeding the 12% Cap Without Written Consent (MSA Section 7.4(c)). Section 7.4(c) of the MSA provides that no monthly surcharge shall exceed twelve percent (12%) of the base price for the applicable product category unless Cardinal Peak obtains the prior written consent of Nexford's authorized procurement representative. For four (4) of the fourteen (14) disputed months, the surcharges invoiced by Cardinal Peak exceeded the 12% cap, in some instances by a substantial margin (reaching as high as 19.3% in one month). Cardinal Peak never obtained written consent from Nexford for any of these cap exceedances. The surcharges attributable to the cap exceedance issue totaled approximately $1.08 million.

It is important to note that there is some overlap among these three categories — certain months are affected by more than one deficiency — such that the dollar amounts associated with each defense are not entirely additive. Nonetheless, taken together, these defenses supported Nexford's position that its maximum additional obligation beyond the $1.68 million already paid was no more than $0.21 million — an amount that Nexford, through its Counterclaim, contended was itself an overpayment that should be refunded.

E. Pre-Mediation Procedural Posture

On May 22, 2023, the parties filed a Joint Motion to Stay Litigation Pending Mediation, pursuant to the mandatory mediation provision of MSA Section 14.3. The court granted the motion on June 5, 2023, staying all proceedings and deadlines pending the completion of mediation. At the time of the stay, the parties were approaching the close of the dispositive motions window, and trial was tentatively scheduled for February 2024.

Opposing counsel throughout this matter has been the firm of Blackwood Stein & Associates LLP, with Garrett Blackwood serving as lead partner and Megan Hsu serving as the primary associate on the matter.

III. Summary of Mediation Proceedings

A. Attendance and Representation

The full-day mediation session convened at approximately 9:00 a.m. on August 2, 2023, at the offices of the Great Lakes Dispute Resolution Center. The parties were represented as follows:

Nexford Industrial Holdings Inc. was represented by Priya Anand (Partner) and Simone Laroche (Senior Associate) of Calderwood & Harkness LLP. Deborah Whitfield, General Counsel, and Russell Okonkwo, Vice President of Procurement, attended on behalf of the Company and served as Nexford's authorized representatives for purposes of the mediation.

Cardinal Peak Industries was represented by Garrett Blackwood (Partner) and Megan Hsu (Associate) of Blackwood Stein & Associates LLP. Frank Delacroix, President and Chief Executive Officer, and Natalie Gunderson, Vice President of Sales and Commercial Operations, attended on behalf of Cardinal Peak.

The mediation was conducted by the Honorable Catherine Lindström (Ret.), a former Illinois Appellate Court justice and experienced commercial mediator with particular expertise in complex contract and supply-chain disputes.

B. Joint Opening Session

Judge Lindström opened the session with introductory remarks regarding the mediation process, ground rules, and the confidentiality of all communications made during the mediation pursuant to the Illinois Uniform Mediation Act (710 ILCS 35/1 et seq.). She then invited each side to deliver an opening presentation.

Nexford's Opening Presentation. On behalf of Nexford, Priya Anand delivered a presentation that focused squarely on the three contractual defenses described in Section II.D above. The presentation emphasized the following key evidentiary points:

• The admissions made by Cardinal Peak's own witness, Natalie Gunderson, during her January 18, 2023 deposition, in which she acknowledged: (i) the late delivery of seven Surcharge Notices; (ii) Cardinal Peak's use of an internal blended cost metric that deviated from the Exhibit C methodology requiring reliance on the published Ferrous Scrap Index and Industrial Energy Cost Index; and (iii) the absence of written consent from Nexford for months in which surcharges exceeded the 12% cap.

• The conclusions of Dr. Anita Rosenthal's rebuttal expert report, which demonstrated that a proper recalculation of the surcharges using the Exhibit C methodology and the published indices would result in materially lower surcharge amounts than those invoiced by Cardinal Peak, and that the aggregate effect of the three defenses substantially eliminated the claimed balance.

• The plain language of MSA Section 7.4, which imposed clear procedural and substantive conditions precedent to the imposition of surcharges, and Cardinal Peak's failure to satisfy those conditions for a significant majority of the disputed invoices.

The presentation was designed to convey to Cardinal Peak — and to the mediator — that Nexford had strong contractual defenses that created meaningful trial risk for Cardinal Peak across a substantial portion of its claimed damages.

Cardinal Peak's Opening Presentation. Mr. Blackwood presented on behalf of Cardinal Peak. His presentation emphasized the extraordinary magnitude of raw-material cost increases during the 2021–2022 period, driven by well-documented supply-chain disruptions and inflationary pressures in the ferrous metals and industrial energy markets. Mr. Blackwood argued that Cardinal Peak had substantially complied with the notice requirements of MSA Section 7.4(a), that the internal blended cost metric was a reasonable proxy for the published indices (and in fact produced lower surcharge amounts than a strict application of the indices would have yielded in certain months), and that the 12% cap should be interpreted in light of the force majeure conditions prevailing in the market. He presented the Dr. Voss damages report, which quantified Cardinal Peak's total claimed damages at $5.11 million, inclusive of prejudgment interest.

C. Private Caucuses and Negotiation

Following the joint opening session, Judge Lindström conducted multiple rounds of private caucuses with each party throughout the remainder of the day. The mediator moved between the respective conference rooms, facilitating an exchange of proposals and counterproposals and working to narrow the gap between the parties' respective positions.

Cardinal Peak's initial demand, as conveyed through the mediator during the first caucus round, was $4.2 million — a modest reduction from the $4.73 million claimed in the Complaint, but still well above the range that Nexford considered appropriate given the strength of its defenses. Nexford's initial counterproposal was $0.75 million, reflecting our assessment of the realistic exposure after application of the three defenses, adjusted upward to account for the inherent uncertainty of trial.

Over the course of several additional rounds of caucuses, with Judge Lindström employing a combination of evaluative and facilitative mediation techniques, the parties progressively narrowed the gap between their positions. Judge Lindström was particularly effective in communicating to Cardinal Peak the litigation risks associated with the Gunderson deposition admissions and the deviation from the Exhibit C methodology, while also conveying to Nexford the reality that juries can be sympathetic to claims involving demonstrable cost increases and the risk that a court might find certain of the contractual notice provisions to be unenforceable as hyper-technical barriers to recovery.

D. Settlement Reached

After a full day of intensive negotiations, the parties reached a settlement in principle in the late afternoon. Judge Lindström brought both parties together in a joint session at approximately 5:15 p.m. to confirm the agreed-upon terms. A written term sheet was prepared, reviewed by counsel for both parties, and executed by the authorized representatives of both Cardinal Peak (Mr. Delacroix) and Nexford (Ms. Whitfield, acting under the authority granted by the Nexford Board of Directors). The material terms of the executed term sheet are summarized in Section IV below.

IV. Settlement Terms

The following is a summary of the material terms reflected in the executed term sheet. The term sheet contemplates that these terms will be incorporated into a formal Settlement Agreement and Mutual Release to be negotiated and executed by the parties within approximately two weeks of the mediation date.

A. Settlement Payment

Nexford has agreed to pay Cardinal Peak a total settlement amount of $1,890,000.00 (one million eight hundred ninety thousand dollars). This amount represents approximately 40% of Cardinal Peak's claimed unpaid balance of $4.73 million ($4,730,000 × 0.3997 ≈ $1,890,000), and approximately 37% of Cardinal Peak's total asserted damages of $5.11 million (inclusive of prejudgment interest).

The settlement payment is to be structured in two installments, as follows:

First Installment: $1,134,000.00 (representing 60% of the total settlement amount), due and payable within thirty (30) days of the execution of the formal Settlement Agreement and Mutual Release. Assuming the Settlement Agreement is executed on or before August 18, 2023, the anticipated due date for this installment would be approximately September 17, 2023.

Second Installment: $756,000.00 (representing 40% of the total settlement amount), due and payable within ninety (90) days of the execution of the formal Settlement Agreement and Mutual Release. Assuming execution by August 18, 2023, the anticipated due date for this installment would be approximately November 16, 2023.

The term sheet provides that payment shall be made by wire transfer to an account designated by Cardinal Peak in the Settlement Agreement. The term sheet further provides that a failure to make either installment payment by the applicable due date (subject to a five-business-day cure period following written notice of nonpayment) shall constitute a material breach of the Settlement Agreement, entitling Cardinal Peak to accelerate any remaining balance and to enforce the Settlement Agreement as a judgment.

B. Mutual Release

The settlement includes a full mutual release of all claims and counterclaims arising from or related to the surcharge dispute under the MSA. Specifically:

• Cardinal Peak will release Nexford from all claims asserted in the Complaint (Counts I through III), as well as any other claims, whether known or unknown, that arise from or relate to the surcharges invoiced under the MSA during the disputed period or otherwise.

• Nexford will release Cardinal Peak from all claims asserted in the Counterclaim, including the claim for recovery of the $0.21 million alleged overpayment, as well as any other claims, whether known or unknown, arising from or relating to the surcharge dispute.

The mutual release is a critical element of the settlement. By releasing the Counterclaim, Nexford is forgoing the potential recovery of $0.21 million that it had claimed as an overpayment. However, as discussed in Section V below, this concession is fully justified in the context of the overall settlement economics and the litigation risk and cost associated with pursuing the Counterclaim to judgment.

C. No Admission of Liability

The term sheet expressly provides that neither party admits liability in connection with the settlement. The settlement is and shall be characterized as a compromise and settlement of disputed claims, entered into solely for the purpose of avoiding the expense, burden, and uncertainty of continued litigation. Neither the settlement nor any of its terms may be used as evidence of, or construed as an admission of, liability or wrongdoing by either party in any proceeding.

D. MSA Termination

The parties have agreed that the Master Supply Agreement (MSA-NIH-CPI-2020-001) will be terminated by mutual agreement effective August 31, 2023. Given the deterioration of the commercial relationship between the parties and the nature of the disputes that gave rise to this litigation, the termination of the MSA was a mutual objective of both parties and was not a point of significant contention during the negotiations.

To ensure an orderly transition, the term sheet provides for a transition period during which all outstanding purchase orders issued under the MSA prior to August 31, 2023 will continue to be fulfilled and honored by Cardinal Peak through October 31, 2023. During this transition period, the pricing, delivery, and quality terms of the MSA will remain in effect with respect to such outstanding orders. No new purchase orders may be placed under the MSA after August 31, 2023. The formal Mutual Termination Agreement will address additional transition matters, including the return of confidential information and the survival of certain provisions (such as indemnification obligations for pre-termination deliveries and intellectual property protections).

E. Confidentiality. The terms of the settlement, including the settlement amount, are to be treated as confidential. Neither party may make any public statement regarding the specific terms or amount of the settlement. The confidentiality provision permits disclosure as required by law, regulation, or legal process, or as necessary for internal business purposes (including disclosure to officers, directors, auditors, lenders, and equity holders), provided that such disclosures are made subject to appropriate confidentiality obligations. The confidentiality provision will be documented in detail in the formal Settlement Agreement.

F. Dismissal of Litigation

Following the execution of the Settlement Agreement and the receipt of the first installment payment, the parties will jointly prepare and file a Stipulation of Dismissal with Prejudice dismissing all claims and counterclaims in Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, in the Circuit Court of Cook County. Each party will bear its own attorneys' fees and costs — there will be no fee-shifting or cost-recovery as part of the settlement.

V. Financial Analysis of Settlement Outcome

We have prepared the following financial analysis to assist Nexford's management and Marlowe Asset Management Bluff Capital Partners in evaluating the settlement in the context of the overall litigation economics.

A. Gross Savings Relative to Claimed Amount

The $1.89 million settlement amount represents a 60% reduction from Cardinal Peak's claimed $4.73 million in unpaid surcharges. Stated differently, Nexford is resolving this dispute at approximately forty cents on the dollar of the claimed amount.

B. Total Estimated Legal Costs

We estimate the total legal costs incurred in connection with this matter through its anticipated conclusion as follows:

The legal fees estimate of $243,670 includes all fees billed to date as well as the estimated fees to complete the remaining work necessary to formalize the settlement, including negotiation and execution of the Settlement Agreement and Mutual Release, the MSA Termination Agreement, the Stipulation of Dismissal, and the Ridgecrest notification letter described in Section VI below. The actual final fees may vary modestly depending on the complexity of the settlement documentation negotiations, but we do not anticipate a material deviation from this estimate.

C. Net Savings to Nexford

After accounting for all legal fees and costs associated with defending this matter and bringing it to resolution, the settlement yields net savings to Nexford of approximately $2.568 million relative to the amount claimed by Cardinal Peak.

D. Comparison to Litigation Posture and Risk Assessment

The settlement should be evaluated not only against the amount claimed but also against the range of potential outcomes that Nexford faced had this matter proceeded to trial. That analysis is summarized below:

Maximum Exposure at Trial. Nexford's worst-case exposure at trial was $5.11 million, based on Dr. Voss's damages report, which included $4.73 million in principal and $0.38 million in prejudgment interest. In addition, a worst-case trial outcome could have resulted in an adverse costs award, although the likelihood and magnitude of such an award were uncertain. The $1.89 million settlement eliminates $3.22 million of this maximum exposure.

Best-Case Outcome at Trial. Nexford's best-case position at trial was a defense verdict finding zero additional obligation beyond the $1.68 million already paid, or potentially the recovery of $0.21 million on the Counterclaim. However, achieving this best-case outcome would have required Nexford to incur substantial additional litigation costs. We estimated at the time of the mediation that additional fees and costs to complete discovery, prepare for trial, conduct the trial, and handle any post-trial proceedings would range from approximately $100,000 to $225,000, bringing Nexford's total through-trial legal budget to an estimated $350,000 to $500,000. Even in a best-case scenario, the incremental litigation investment would have reduced Nexford's net benefit by a significant amount.

Uncertainty and Intangible Considerations. While we maintained confidence in the strength of Nexford's contractual defenses, litigation outcomes are inherently uncertain. A jury could have been swayed by Cardinal Peak's narrative regarding the extraordinary raw-material cost increases during 2021–2022, and there was a non-trivial risk that the court could have found one or more of Nexford's contractual defenses to be less dispositive than we believed — for example, by applying a substantial compliance standard to the notice requirements or by finding that the Exhibit C methodology deviation was not material in light of the underlying cost data. The settlement eliminates this uncertainty entirely and provides a definitive, known outcome.

Pre-Authorized Settlement Authority. The settlement amount of $1.89 million falls within the pre-authorized settlement authority of up to $2.0 million that was approved by Marlowe Asset Management Bluff Capital Partners, LP, in its capacity as Nexford's majority equity holder, prior to the mediation. No additional board or investor approval is required to proceed with the settlement on these terms.

In summary, the settlement achieves a highly favorable financial outcome for Nexford, eliminating more than $2.5 million in net exposure while avoiding the substantial additional costs, management distraction, and uncertainty that would have accompanied continued litigation through trial.

VI. Lender Notification Requirement

We wish to bring to your attention a lender notification obligation that will be triggered by the execution of the Settlement Agreement.

Section 6.03(b) of Nexford's $45 million revolving credit facility with Ridgecrest National Bank, N.A. (Credit Agreement dated March 12, 2021) requires that Nexford provide written notice to Ridgecrest of any settlement or compromise of litigation or disputed claims involving payments by Nexford in excess of $1,000,000 in the aggregate. Because the settlement amount of $1,890,000 exceeds this $1.0 million threshold, Nexford is obligated to provide written notice to Ridgecrest promptly upon the execution of the Settlement Agreement.

Calderwood & Harkness will prepare and deliver the required notification letter to Karen Whitmore, Relationship Manager, Ridgecrest National Bank, N.A., 120 North LaSalle Street, Chicago, Illinois 60602. We will circulate a draft of the notification letter to Ms. Whitfield and Ms. Tran for review and approval prior to delivery. We note that the notification is informational in nature — Section 6.03(b) requires notice but does not require Ridgecrest's consent to the settlement. We do not anticipate that the notification will give rise to any issues under the credit facility, but we recommend that Ms. Tran coordinate with Ridgecrest's relationship team to ensure the notification is received and acknowledged in a timely manner.

VII. Next Steps

The following action items must be completed in order to formalize the settlement and fully resolve this matter. We have organized these items in approximate order of priority and have identified the responsible parties for each.

A. Formal Settlement Agreement and Mutual Release

Pursuant to the term sheet, counsel for Cardinal Peak — Blackwood Stein & Associates LLP — has agreed to circulate an initial draft of the formal Settlement Agreement and Mutual Release within five (5) business days of the mediation, which would be on or before August 9, 2023. Upon receipt, Calderwood & Harkness will review the draft in detail, prepare a redline reflecting any necessary revisions, and negotiate the final terms with opposing counsel. We anticipate one to two rounds of revisions. Our target is to have the Settlement Agreement fully executed on or before August 18, 2023, which would establish the following payment deadlines:

• First Installment ($1,134,000): due on or before September 17, 2023

• Second Installment ($756,000): due on or before November 16, 2023

We will circulate each draft of the Settlement Agreement to Ms. Whitfield for review and comment prior to finalization.

B. MSA Termination Agreement

A separate Mutual Termination Agreement will need to be negotiated and executed to formally terminate the Master Supply Agreement (MSA-NIH-CPI-2020-001) effective August 31, 2023. This agreement will address the following matters:

• Confirmation of the MSA termination effective date of August 31, 2023;

• Provisions governing the wind-down and fulfillment of all outstanding purchase orders through October 31, 2023, including pricing, delivery schedules, and quality requirements;

• Obligations regarding the return or destruction of confidential information exchanged under the MSA;

• Identification of MSA provisions that survive termination, including indemnification obligations for goods delivered prior to termination, intellectual property protections, and limitation of liability provisions; and

• Allocation of responsibility for any pending warranty claims or product quality issues relating to pre-termination deliveries.

We recommend that the MSA Termination Agreement be negotiated and executed concurrently with, or promptly following, the Settlement Agreement, with a target execution date of no later than August 25, 2023.

C. Stipulation of Dismissal

Following the execution of the Settlement Agreement, Calderwood & Harkness will coordinate with Blackwood Stein & Associates LLP to jointly prepare and file a Stipulation of Dismissal with Prejudice in Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, dismissing all claims and counterclaims with prejudice, with each party bearing its own attorneys' fees and costs. We anticipate filing the Stipulation within five (5) business days of the execution of the Settlement Agreement.

D. Ridgecrest Settlement Notice

As discussed in Section VI above, Calderwood & Harkness will prepare the required lender notification letter to Ridgecrest National Bank, N.A. and will circulate a draft to Ms. Whitfield and Ms. Tran for review prior to delivery. We intend to deliver the notification promptly upon execution of the Settlement Agreement to ensure compliance with the notice requirements of Section 6.03(b) of the credit facility.

E. Payment Logistics

We understand that Lydia Tran, Nexford's Chief Financial Officer, will be responsible for coordinating the internal authorization and funding of the two installment payments. We recommend that Ms. Tran begin the internal approval process for the first installment ($1,134,000) now, so that the Company is prepared to remit payment promptly upon execution of the Settlement Agreement. The term sheet provides for payment by wire transfer to an account to be designated by Cardinal Peak in the Settlement Agreement. We will ensure that the Settlement Agreement includes complete wire transfer instructions.

We note again the importance of timely payment. The term sheet provides that a failure to make either installment by the applicable due date (subject to a five-business-day cure period) constitutes a material breach and entitles Cardinal Peak to accelerate the remaining balance. Accordingly, we strongly recommend that Nexford calendar the payment due dates and establish internal controls to ensure compliance.

F. Procurement Transition

Given the termination of the MSA effective August 31, 2023, Russell Okonkwo, Vice President of Procurement, should begin coordinating the transition of Nexford's supply arrangements to alternative suppliers. While the transition period for outstanding purchase orders extends through October 31, 2023, no new purchase orders may be placed under the MSA after the termination date. We recommend that Mr. Okonkwo work with the Company's procurement and operations teams to identify and qualify alternative sources of supply in advance of the October 31 transition deadline to minimize any disruption to Nexford's operations.

VIII. Recommendation

Based on our assessment of the litigation posture, the strength of Nexford's defenses, the costs and risks associated with continued litigation through trial, and the overall economics of the settlement, Calderwood & Harkness recommends proceeding expeditiously with the formalization of the settlement on the terms outlined in the executed term sheet.

The settlement amount of $1.89 million represents a highly favorable result for Nexford. It achieves a 60% reduction from Cardinal Peak's claimed amount of $4.73 million and a 63% reduction from Cardinal Peak's total asserted damages of $5.11 million (inclusive of prejudgment interest). After accounting for all legal fees and costs, the settlement delivers net savings to Nexford of approximately $2.568 million. The settlement eliminates the risk of an adverse trial outcome, avoids the expenditure of an estimated $100,000 to $225,000 in additional litigation costs, and provides certainty of outcome for Nexford and its stakeholders — including Marlowe Asset Management Bluff Capital Partners and Ridgecrest National Bank. The settlement amount is within the pre-authorized settlement authority approved by Marlowe Asset Management Bluff, and the structured installment payment schedule should be manageable within Nexford's ordinary cash-flow cycle.

We believe the mediation process, and Judge Lindström's skillful facilitation in particular, produced a result that accurately reflects the litigation risk profile and the respective strengths of the parties' positions. We are confident that this is a resolution that serves Nexford's interests well.

IX. Closing

We respectfully request that Nexford and Marlowe Asset Management Bluff Capital Partners confirm authorization to proceed with the formal documentation of the settlement on the terms described in this letter and the executed term sheet. Specifically, we ask that Ms. Whitfield confirm, on behalf of Nexford, that we are authorized to negotiate and finalize the Settlement Agreement and Mutual Release, the MSA Termination Agreement, and the Stipulation of Dismissal in accordance with the terms outlined herein.

We would welcome the opportunity to schedule a call at your earliest convenience to discuss this report, answer any questions, and coordinate the next steps outlined in Section VII. Please do not hesitate to contact Priya Anand at (312) 555-7812 or panand@calderwoodharkness.com, or Simone Laroche at (312) 555-7834 or slaroche@calderwoodharkness.com, at any time.

We wish to express our sincere appreciation for the confidence and trust that Nexford Industrial Holdings and Marlowe Asset Management Bluff Capital Partners have placed in Calderwood & Harkness throughout this engagement. It has been a privilege to represent the Company in this matter, and we are pleased that the mediation has produced a result that we believe serves the Company's interests exceptionally well. We look forward to bringing this matter to a successful conclusion in the coming weeks.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand Partner 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7812

Email: panand@calderwoodharkness.com

cc: (via electronic mail)

Douglas Carmichael, Esq., Calderwood & Harkness LLP Simone Laroche, Esq., Calderwood & Harkness LLP Lydia Tran, Chief Financial Officer, Nexford Industrial Holdings Inc. Conrad Yeung, Managing Partner, Marlowe Asset Management Bluff Capital Partners, LP

ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This document and all information contained herein are protected by the attorney-client privilege and the work-product doctrine. Unauthorized disclosure, distribution, or copying of this communication is strictly prohibited.

Amount

Cardinal Peak's Claimed Unpaid Balance	$4,730,000
Settlement Amount	($1,890,000)
Gross Savings to Nexford	$2,840,000
Category	Estimated Amount
Calderwood & Harkness LLP — Legal Fees (through matter conclusion)	$243,670
Mediator Fees (Hon. Catherine Lindström, Ret.)	$12,500
Expert Fees (Meridian Bridge Consulting LLC — Dr. Rosenthal)	$11,200
Court Reporter Fees (depositions of Gunderson and Okonkwo)	$3,150
Filing, Service, and Miscellaneous Costs	$1,565
Total Costs Advanced	$28,415
Total Estimated Engagement Cost	$272,085

Amount

Gross Savings (from Section V.A)	$2,840,000
Less: Total Estimated Legal Costs	($272,085)
Net Savings to Nexford	$2,567,915

CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7800 Facsimile: (312) 555-7801 www.calderwoodharkness.com
August 4, 2023
VIA ELECTRONIC MAIL — PRIVILEGED AND CONFIDENTIAL
Deborah Whitfield, Esq. General Counsel Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
Martin Schaeffer Chief Executive Officer Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
Diana Calloway Principal Marlowe Asset Management Bluff Capital Partners, LP 875 North Michigan Avenue, Suite 3600 Chicago, Illinois 60611
Re: Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division
Calderwood & Harkness Matter No. 1005-00005
Post-Mediation Report
ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
This letter and all enclosures and attachments hereto are protected from disclosure by the attorney-client privilege, the work-product doctrine, and all other applicable privileges and protections. This communication is intended solely for the use of the addressees identified above. Any dissemination, distribution, copying, or other use of this communication or the information contained herein by any person other than the intended recipients is strictly prohibited. If you have received this communication in error, please notify the sender immediately and destroy all copies.
I. Introduction and Purpose of This Letter
Dear Ms. Whitfield, Mr. Schaeffer, and Ms. Calloway:
We write to report on the outcome of the full-day mediation held on Wednesday, August 2, 2023, before the Honorable Catherine Lindström (Ret.) at the Great Lakes Dispute Resolution Center, located at 150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606. As you are aware, this mediation was conducted in connection with the above-referenced litigation between Cardinal Peak Industries ("Cardinal Peak" or "CPI") and Nexford Industrial Holdings Inc. ("Nexford" or the "Company"), and was convened pursuant to Section 14.3 of the Master Supply Agreement (MSA-NIH-CPI-2020-001), which mandates pre-litigation mediation in Chicago, Illinois, and provides that Illinois law governs all disputes arising under the agreement.
We are pleased to report that the mediation concluded successfully, resulting in a settlement in principle between the parties. A binding term sheet memorializing the essential terms of the settlement was signed by authorized representatives of both Cardinal Peak and Nexford at the conclusion of the mediation session on the evening of August 2, 2023. The term sheet provides the framework for a formal Settlement Agreement and Mutual Release, which will be reduced to a definitive written agreement in the coming days.
The purpose of this letter is fourfold: (1) to provide you with a comprehensive summary of the material terms of the settlement as reflected in the executed term sheet; (2) to analyze the settlement in the context of the litigation posture and the range of outcomes Nexford faced at trial; (3) to identify certain post-settlement obligations, including a lender notification requirement under Nexford's revolving credit facility; and (4) to outline the specific next steps required to formalize the settlement and bring this matter to a close.
We believe the settlement represents a highly favorable result for Nexford and its stakeholders, and we recommend proceeding expeditiously with the formalization of the agreement on the terms described herein.
II. Background and Litigation Posture Entering Mediation
To provide appropriate context for the settlement analysis, we briefly summarize the procedural history and litigation posture of this matter as it stood at the time of the mediation.
A. Commencement of Litigation and Cardinal Peak's Claims
Cardinal Peak Industries filed its Complaint against Nexford Industrial Holdings Inc. on August 8, 2022, in the Circuit Court of Cook County, Illinois, County Department, Law Division, initiating the action captioned Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471. The Complaint asserted three counts:
Count I — Breach of Contract. Cardinal Peak alleged that Nexford breached its obligations under the Master Supply Agreement (MSA-NIH-CPI-2020-001), executed January 15, 2020, by failing to pay certain raw-material surcharges invoiced by Cardinal Peak during the period from March 2021 through May 2022.
Count II — Unjust Enrichment. In the alternative, Cardinal Peak alleged that Nexford was unjustly enriched by receiving goods manufactured with higher-cost raw materials without paying the corresponding surcharges.
Count III — Account Stated. Cardinal Peak alleged that the invoices submitted during the disputed period, which Nexford received without timely objection, constituted an account stated obligating Nexford to pay the amounts reflected therein.
Cardinal Peak's Complaint claimed a total of $4.73 million in unpaid surcharges. According to Cardinal Peak's invoicing records and the evidence produced during discovery, the total surcharges invoiced during the disputed period of March 2021 through May 2022 amounted to approximately $6.41 million across fourteen months of invoicing. Nexford paid $1.68 million of those invoiced surcharges — amounts corresponding to months where Nexford determined the surcharges were properly calculated and timely noticed. Cardinal Peak claimed the unpaid balance of $4.73 million as damages.
Cardinal Peak retained Dr. Theodore Voss of Pinnacle Economics Group LLC as its damages expert. Dr. Voss submitted his expert report on April 12, 2023, in which he opined that Cardinal Peak's total damages amounted to $5.11 million, consisting of the $4.73 million in claimed principal together with approximately $0.38 million in prejudgment interest calculated at the statutory rate under Illinois law.
B. Nexford's Answer, Affirmative Defenses, and Counterclaim
Nexford filed its Answer and Affirmative Defenses on September 19, 2022, denying liability on all three counts and asserting a series of affirmative defenses grounded in Cardinal Peak's failure to comply with the contractual prerequisites for the imposition of surcharges under Section 7.4 of the MSA. On October 3, 2022, Nexford filed a Counterclaim seeking declaratory relief and the return of $0.21 million that Nexford contended had been overpaid due to Cardinal Peak's improper calculation of certain surcharges during the months for which Nexford had made partial payments.
Cardinal Peak moved to dismiss the Counterclaim on October 24, 2022, arguing that Nexford's overpayment claim was barred by the voluntary payment doctrine and that the declaratory relief sought was duplicative of the defenses raised in the Answer. Judge Margaret Fong denied Cardinal Peak's Motion to Dismiss the Counterclaim on November 14, 2022, finding that Nexford's claims were sufficiently pled and presented justiciable questions of contract interpretation.
C. Discovery and Expert Proceedings
Fact and expert discovery were completed in the spring of 2023. The key discovery milestones relevant to the mediation included the following:
Depositions. Two principal fact witnesses were deposed. Natalie Gunderson, Cardinal Peak's Vice President of Sales and Commercial Operations, was deposed on January 18, 2023. Russell Okonkwo, Nexford's Vice President of Procurement, was deposed on February 7, 2023. Ms. Gunderson's testimony proved particularly significant, as discussed further below.
Expert Reports. Following the exchange of initial expert reports — including Dr. Voss's April 12, 2023 report for Cardinal Peak — Nexford submitted the rebuttal expert report of Dr. Anita Rosenthal of Meridian Bridge Consulting LLC on March 15, 2023. Dr. Rosenthal's report challenged Dr. Voss's damages calculation on multiple grounds and supported Nexford's position that the properly calculated surcharges owed, if any, were substantially below the amounts claimed.
D. Nexford's Three Principal Defenses
The core of Nexford's defense throughout this litigation rested on three independent but partially overlapping grounds arising under MSA Section 7.4, the provision governing the imposition, calculation, and invoicing of raw-material surcharges. These three defenses, which formed the centerpiece of our mediation presentation, were as follows:
(a) Late Surcharge Notices (MSA Section 7.4(a)). Section 7.4(a) of the MSA requires that Cardinal Peak deliver a written Surcharge Notice to Nexford no later than the fifteenth (15th) day of the month in which the surcharge is to take effect, with such notice to include the specific index data and calculations supporting the surcharge amount. Cardinal Peak failed to deliver timely Surcharge Notices for seven (7) of the fourteen (14) disputed months, with delays ranging from three to twenty-seven days. The surcharges attributable to these seven late-noticed months totaled approximately $2.18 million. Notably, Ms. Gunderson acknowledged in her January 18, 2023 deposition that seven notices were delivered after the contractual deadline, although she characterized the delays as immaterial.
(b) Deviation from Exhibit C Surcharge Methodology (MSA Section 7.4(b) and Exhibit C). The MSA's Exhibit C prescribes a specific methodology for calculating surcharges, which requires the use of two published indices: the Ferrous Scrap Index (as published by the Sterling Reach Partners LLC) and the Industrial Energy Cost Index (as published by the U.S. Bureau of Labor Statistics). Discovery revealed that Cardinal Peak had instead used an internal blended cost metric derived from Cardinal Peak's own purchasing records and utility invoices, which did not conform to the published indices specified in Exhibit C. The surcharges affected by this methodological deviation totaled approximately $1.47 million. Ms. Gunderson conceded in her deposition that Cardinal Peak had utilized the internal blended cost metric rather than the published indices for purposes of calculating surcharges during the disputed period, though she maintained that the internal metric produced results "substantially equivalent" to the Exhibit C methodology.
(c) Surcharges Exceeding the 12% Cap Without Written Consent (MSA Section 7.4(c)). Section 7.4(c) of the MSA provides that no monthly surcharge shall exceed twelve percent (12%) of the base price for the applicable product category unless Cardinal Peak obtains the prior written consent of Nexford's authorized procurement representative. For four (4) of the fourteen (14) disputed months, the surcharges invoiced by Cardinal Peak exceeded the 12% cap, in some instances by a substantial margin (reaching as high as 19.3% in one month). Cardinal Peak never obtained written consent from Nexford for any of these cap exceedances. The surcharges attributable to the cap exceedance issue totaled approximately $1.08 million.
It is important to note that there is some overlap among these three categories — certain months are affected by more than one deficiency — such that the dollar amounts associated with each defense are not entirely additive. Nonetheless, taken together, these defenses supported Nexford's position that its maximum additional obligation beyond the $1.68 million already paid was no more than $0.21 million — an amount that Nexford, through its Counterclaim, contended was itself an overpayment that should be refunded.
E. Pre-Mediation Procedural Posture
On May 22, 2023, the parties filed a Joint Motion to Stay Litigation Pending Mediation, pursuant to the mandatory mediation provision of MSA Section 14.3. The court granted the motion on June 5, 2023, staying all proceedings and deadlines pending the completion of mediation. At the time of the stay, the parties were approaching the close of the dispositive motions window, and trial was tentatively scheduled for February 2024.
Opposing counsel throughout this matter has been the firm of Blackwood Stein & Associates LLP, with Garrett Blackwood serving as lead partner and Megan Hsu serving as the primary associate on the matter.
III. Summary of Mediation Proceedings
A. Attendance and Representation
The full-day mediation session convened at approximately 9:00 a.m. on August 2, 2023, at the offices of the Great Lakes Dispute Resolution Center. The parties were represented as follows:
Nexford Industrial Holdings Inc. was represented by Priya Anand (Partner) and Simone Laroche (Senior Associate) of Calderwood & Harkness LLP. Deborah Whitfield, General Counsel, and Russell Okonkwo, Vice President of Procurement, attended on behalf of the Company and served as Nexford's authorized representatives for purposes of the mediation.
Cardinal Peak Industries was represented by Garrett Blackwood (Partner) and Megan Hsu (Associate) of Blackwood Stein & Associates LLP. Frank Delacroix, President and Chief Executive Officer, and Natalie Gunderson, Vice President of Sales and Commercial Operations, attended on behalf of Cardinal Peak.
The mediation was conducted by the Honorable Catherine Lindström (Ret.), a former Illinois Appellate Court justice and experienced commercial mediator with particular expertise in complex contract and supply-chain disputes.
B. Joint Opening Session
Judge Lindström opened the session with introductory remarks regarding the mediation process, ground rules, and the confidentiality of all communications made during the mediation pursuant to the Illinois Uniform Mediation Act (710 ILCS 35/1 et seq.). She then invited each side to deliver an opening presentation.
Nexford's Opening Presentation. On behalf of Nexford, Priya Anand delivered a presentation that focused squarely on the three contractual defenses described in Section II.D above. The presentation emphasized the following key evidentiary points:
• The admissions made by Cardinal Peak's own witness, Natalie Gunderson, during her January 18, 2023 deposition, in which she acknowledged: (i) the late delivery of seven Surcharge Notices; (ii) Cardinal Peak's use of an internal blended cost metric that deviated from the Exhibit C methodology requiring reliance on the published Ferrous Scrap Index and Industrial Energy Cost Index; and (iii) the absence of written consent from Nexford for months in which surcharges exceeded the 12% cap.
• The conclusions of Dr. Anita Rosenthal's rebuttal expert report, which demonstrated that a proper recalculation of the surcharges using the Exhibit C methodology and the published indices would result in materially lower surcharge amounts than those invoiced by Cardinal Peak, and that the aggregate effect of the three defenses substantially eliminated the claimed balance.
• The plain language of MSA Section 7.4, which imposed clear procedural and substantive conditions precedent to the imposition of surcharges, and Cardinal Peak's failure to satisfy those conditions for a significant majority of the disputed invoices.
The presentation was designed to convey to Cardinal Peak — and to the mediator — that Nexford had strong contractual defenses that created meaningful trial risk for Cardinal Peak across a substantial portion of its claimed damages.
Cardinal Peak's Opening Presentation. Mr. Blackwood presented on behalf of Cardinal Peak. His presentation emphasized the extraordinary magnitude of raw-material cost increases during the 2021–2022 period, driven by well-documented supply-chain disruptions and inflationary pressures in the ferrous metals and industrial energy markets. Mr. Blackwood argued that Cardinal Peak had substantially complied with the notice requirements of MSA Section 7.4(a), that the internal blended cost metric was a reasonable proxy for the published indices (and in fact produced lower surcharge amounts than a strict application of the indices would have yielded in certain months), and that the 12% cap should be interpreted in light of the force majeure conditions prevailing in the market. He presented the Dr. Voss damages report, which quantified Cardinal Peak's total claimed damages at $5.11 million, inclusive of prejudgment interest.
C. Private Caucuses and Negotiation
Following the joint opening session, Judge Lindström conducted multiple rounds of private caucuses with each party throughout the remainder of the day. The mediator moved between the respective conference rooms, facilitating an exchange of proposals and counterproposals and working to narrow the gap between the parties' respective positions.
Cardinal Peak's initial demand, as conveyed through the mediator during the first caucus round, was $4.2 million — a modest reduction from the $4.73 million claimed in the Complaint, but still well above the range that Nexford considered appropriate given the strength of its defenses. Nexford's initial counterproposal was $0.75 million, reflecting our assessment of the realistic exposure after application of the three defenses, adjusted upward to account for the inherent uncertainty of trial.
Over the course of several additional rounds of caucuses, with Judge Lindström employing a combination of evaluative and facilitative mediation techniques, the parties progressively narrowed the gap between their positions. Judge Lindström was particularly effective in communicating to Cardinal Peak the litigation risks associated with the Gunderson deposition admissions and the deviation from the Exhibit C methodology, while also conveying to Nexford the reality that juries can be sympathetic to claims involving demonstrable cost increases and the risk that a court might find certain of the contractual notice provisions to be unenforceable as hyper-technical barriers to recovery.
D. Settlement Reached
After a full day of intensive negotiations, the parties reached a settlement in principle in the late afternoon. Judge Lindström brought both parties together in a joint session at approximately 5:15 p.m. to confirm the agreed-upon terms. A written term sheet was prepared, reviewed by counsel for both parties, and executed by the authorized representatives of both Cardinal Peak (Mr. Delacroix) and Nexford (Ms. Whitfield, acting under the authority granted by the Nexford Board of Directors). The material terms of the executed term sheet are summarized in Section IV below.
IV. Settlement Terms
The following is a summary of the material terms reflected in the executed term sheet. The term sheet contemplates that these terms will be incorporated into a formal Settlement Agreement and Mutual Release to be negotiated and executed by the parties within approximately two weeks of the mediation date.
A. Settlement Payment
Nexford has agreed to pay Cardinal Peak a total settlement amount of $1,890,000.00 (one million eight hundred ninety thousand dollars). This amount represents approximately 40% of Cardinal Peak's claimed unpaid balance of $4.73 million ($4,730,000 × 0.3997 ≈ $1,890,000), and approximately 37% of Cardinal Peak's total asserted damages of $5.11 million (inclusive of prejudgment interest).
The settlement payment is to be structured in two installments, as follows:
First Installment: $1,134,000.00 (representing 60% of the total settlement amount), due and payable within thirty (30) days of the execution of the formal Settlement Agreement and Mutual Release. Assuming the Settlement Agreement is executed on or before August 18, 2023, the anticipated due date for this installment would be approximately September 17, 2023.
Second Installment: $756,000.00 (representing 40% of the total settlement amount), due and payable within ninety (90) days of the execution of the formal Settlement Agreement and Mutual Release. Assuming execution by August 18, 2023, the anticipated due date for this installment would be approximately November 16, 2023.
The term sheet provides that payment shall be made by wire transfer to an account designated by Cardinal Peak in the Settlement Agreement. The term sheet further provides that a failure to make either installment payment by the applicable due date (subject to a five-business-day cure period following written notice of nonpayment) shall constitute a material breach of the Settlement Agreement, entitling Cardinal Peak to accelerate any remaining balance and to enforce the Settlement Agreement as a judgment.
B. Mutual Release
The settlement includes a full mutual release of all claims and counterclaims arising from or related to the surcharge dispute under the MSA. Specifically:
• Cardinal Peak will release Nexford from all claims asserted in the Complaint (Counts I through III), as well as any other claims, whether known or unknown, that arise from or relate to the surcharges invoiced under the MSA during the disputed period or otherwise.
• Nexford will release Cardinal Peak from all claims asserted in the Counterclaim, including the claim for recovery of the $0.21 million alleged overpayment, as well as any other claims, whether known or unknown, arising from or relating to the surcharge dispute.
The mutual release is a critical element of the settlement. By releasing the Counterclaim, Nexford is forgoing the potential recovery of $0.21 million that it had claimed as an overpayment. However, as discussed in Section V below, this concession is fully justified in the context of the overall settlement economics and the litigation risk and cost associated with pursuing the Counterclaim to judgment.
C. No Admission of Liability
The term sheet expressly provides that neither party admits liability in connection with the settlement. The settlement is and shall be characterized as a compromise and settlement of disputed claims, entered into solely for the purpose of avoiding the expense, burden, and uncertainty of continued litigation. Neither the settlement nor any of its terms may be used as evidence of, or construed as an admission of, liability or wrongdoing by either party in any proceeding.
D. MSA Termination
The parties have agreed that the Master Supply Agreement (MSA-NIH-CPI-2020-001) will be terminated by mutual agreement effective August 31, 2023. Given the deterioration of the commercial relationship between the parties and the nature of the disputes that gave rise to this litigation, the termination of the MSA was a mutual objective of both parties and was not a point of significant contention during the negotiations.
To ensure an orderly transition, the term sheet provides for a transition period during which all outstanding purchase orders issued under the MSA prior to August 31, 2023 will continue to be fulfilled and honored by Cardinal Peak through October 31, 2023. During this transition period, the pricing, delivery, and quality terms of the MSA will remain in effect with respect to such outstanding orders. No new purchase orders may be placed under the MSA after August 31, 2023. The formal Mutual Termination Agreement will address additional transition matters, including the return of confidential information and the survival of certain provisions (such as indemnification obligations for pre-termination deliveries and intellectual property protections).
E. Confidentiality. The terms of the settlement, including the settlement amount, are to be treated as confidential. Neither party may make any public statement regarding the specific terms or amount of the settlement. The confidentiality provision permits disclosure as required by law, regulation, or legal process, or as necessary for internal business purposes (including disclosure to officers, directors, auditors, lenders, and equity holders), provided that such disclosures are made subject to appropriate confidentiality obligations. The confidentiality provision will be documented in detail in the formal Settlement Agreement.
F. Dismissal of Litigation
Following the execution of the Settlement Agreement and the receipt of the first installment payment, the parties will jointly prepare and file a Stipulation of Dismissal with Prejudice dismissing all claims and counterclaims in Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, in the Circuit Court of Cook County. Each party will bear its own attorneys' fees and costs — there will be no fee-shifting or cost-recovery as part of the settlement.
V. Financial Analysis of Settlement Outcome
We have prepared the following financial analysis to assist Nexford's management and Marlowe Asset Management Bluff Capital Partners in evaluating the settlement in the context of the overall litigation economics.
A. Gross Savings Relative to Claimed Amount
The $1.89 million settlement amount represents a 60% reduction from Cardinal Peak's claimed $4.73 million in unpaid surcharges. Stated differently, Nexford is resolving this dispute at approximately forty cents on the dollar of the claimed amount.
B. Total Estimated Legal Costs
We estimate the total legal costs incurred in connection with this matter through its anticipated conclusion as follows:
The legal fees estimate of $243,670 includes all fees billed to date as well as the estimated fees to complete the remaining work necessary to formalize the settlement, including negotiation and execution of the Settlement Agreement and Mutual Release, the MSA Termination Agreement, the Stipulation of Dismissal, and the Ridgecrest notification letter described in Section VI below. The actual final fees may vary modestly depending on the complexity of the settlement documentation negotiations, but we do not anticipate a material deviation from this estimate.
C. Net Savings to Nexford
After accounting for all legal fees and costs associated with defending this matter and bringing it to resolution, the settlement yields net savings to Nexford of approximately $2.568 million relative to the amount claimed by Cardinal Peak.
D. Comparison to Litigation Posture and Risk Assessment
The settlement should be evaluated not only against the amount claimed but also against the range of potential outcomes that Nexford faced had this matter proceeded to trial. That analysis is summarized below:
Maximum Exposure at Trial. Nexford's worst-case exposure at trial was $5.11 million, based on Dr. Voss's damages report, which included $4.73 million in principal and $0.38 million in prejudgment interest. In addition, a worst-case trial outcome could have resulted in an adverse costs award, although the likelihood and magnitude of such an award were uncertain. The $1.89 million settlement eliminates $3.22 million of this maximum exposure.
Best-Case Outcome at Trial. Nexford's best-case position at trial was a defense verdict finding zero additional obligation beyond the $1.68 million already paid, or potentially the recovery of $0.21 million on the Counterclaim. However, achieving this best-case outcome would have required Nexford to incur substantial additional litigation costs. We estimated at the time of the mediation that additional fees and costs to complete discovery, prepare for trial, conduct the trial, and handle any post-trial proceedings would range from approximately $100,000 to $225,000, bringing Nexford's total through-trial legal budget to an estimated $350,000 to $500,000. Even in a best-case scenario, the incremental litigation investment would have reduced Nexford's net benefit by a significant amount.
Uncertainty and Intangible Considerations. While we maintained confidence in the strength of Nexford's contractual defenses, litigation outcomes are inherently uncertain. A jury could have been swayed by Cardinal Peak's narrative regarding the extraordinary raw-material cost increases during 2021–2022, and there was a non-trivial risk that the court could have found one or more of Nexford's contractual defenses to be less dispositive than we believed — for example, by applying a substantial compliance standard to the notice requirements or by finding that the Exhibit C methodology deviation was not material in light of the underlying cost data. The settlement eliminates this uncertainty entirely and provides a definitive, known outcome.
Pre-Authorized Settlement Authority. The settlement amount of $1.89 million falls within the pre-authorized settlement authority of up to $2.0 million that was approved by Marlowe Asset Management Bluff Capital Partners, LP, in its capacity as Nexford's majority equity holder, prior to the mediation. No additional board or investor approval is required to proceed with the settlement on these terms.
In summary, the settlement achieves a highly favorable financial outcome for Nexford, eliminating more than $2.5 million in net exposure while avoiding the substantial additional costs, management distraction, and uncertainty that would have accompanied continued litigation through trial.
VI. Lender Notification Requirement
We wish to bring to your attention a lender notification obligation that will be triggered by the execution of the Settlement Agreement.
Section 6.03(b) of Nexford's $45 million revolving credit facility with Ridgecrest National Bank, N.A. (Credit Agreement dated March 12, 2021) requires that Nexford provide written notice to Ridgecrest of any settlement or compromise of litigation or disputed claims involving payments by Nexford in excess of $1,000,000 in the aggregate. Because the settlement amount of $1,890,000 exceeds this $1.0 million threshold, Nexford is obligated to provide written notice to Ridgecrest promptly upon the execution of the Settlement Agreement.
Calderwood & Harkness will prepare and deliver the required notification letter to Karen Whitmore, Relationship Manager, Ridgecrest National Bank, N.A., 120 North LaSalle Street, Chicago, Illinois 60602. We will circulate a draft of the notification letter to Ms. Whitfield and Ms. Tran for review and approval prior to delivery. We note that the notification is informational in nature — Section 6.03(b) requires notice but does not require Ridgecrest's consent to the settlement. We do not anticipate that the notification will give rise to any issues under the credit facility, but we recommend that Ms. Tran coordinate with Ridgecrest's relationship team to ensure the notification is received and acknowledged in a timely manner.
VII. Next Steps
The following action items must be completed in order to formalize the settlement and fully resolve this matter. We have organized these items in approximate order of priority and have identified the responsible parties for each.
A. Formal Settlement Agreement and Mutual Release
Pursuant to the term sheet, counsel for Cardinal Peak — Blackwood Stein & Associates LLP — has agreed to circulate an initial draft of the formal Settlement Agreement and Mutual Release within five (5) business days of the mediation, which would be on or before August 9, 2023. Upon receipt, Calderwood & Harkness will review the draft in detail, prepare a redline reflecting any necessary revisions, and negotiate the final terms with opposing counsel. We anticipate one to two rounds of revisions. Our target is to have the Settlement Agreement fully executed on or before August 18, 2023, which would establish the following payment deadlines:
• First Installment ($1,134,000): due on or before September 17, 2023
• Second Installment ($756,000): due on or before November 16, 2023
We will circulate each draft of the Settlement Agreement to Ms. Whitfield for review and comment prior to finalization.
B. MSA Termination Agreement
A separate Mutual Termination Agreement will need to be negotiated and executed to formally terminate the Master Supply Agreement (MSA-NIH-CPI-2020-001) effective August 31, 2023. This agreement will address the following matters:
• Confirmation of the MSA termination effective date of August 31, 2023;
• Provisions governing the wind-down and fulfillment of all outstanding purchase orders through October 31, 2023, including pricing, delivery schedules, and quality requirements;
• Obligations regarding the return or destruction of confidential information exchanged under the MSA;
• Identification of MSA provisions that survive termination, including indemnification obligations for goods delivered prior to termination, intellectual property protections, and limitation of liability provisions; and
• Allocation of responsibility for any pending warranty claims or product quality issues relating to pre-termination deliveries.
We recommend that the MSA Termination Agreement be negotiated and executed concurrently with, or promptly following, the Settlement Agreement, with a target execution date of no later than August 25, 2023.
C. Stipulation of Dismissal
Following the execution of the Settlement Agreement, Calderwood & Harkness will coordinate with Blackwood Stein & Associates LLP to jointly prepare and file a Stipulation of Dismissal with Prejudice in Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Case No. 2022-L-008471, dismissing all claims and counterclaims with prejudice, with each party bearing its own attorneys' fees and costs. We anticipate filing the Stipulation within five (5) business days of the execution of the Settlement Agreement.
D. Ridgecrest Settlement Notice
As discussed in Section VI above, Calderwood & Harkness will prepare the required lender notification letter to Ridgecrest National Bank, N.A. and will circulate a draft to Ms. Whitfield and Ms. Tran for review prior to delivery. We intend to deliver the notification promptly upon execution of the Settlement Agreement to ensure compliance with the notice requirements of Section 6.03(b) of the credit facility.
E. Payment Logistics
We understand that Lydia Tran, Nexford's Chief Financial Officer, will be responsible for coordinating the internal authorization and funding of the two installment payments. We recommend that Ms. Tran begin the internal approval process for the first installment ($1,134,000) now, so that the Company is prepared to remit payment promptly upon execution of the Settlement Agreement. The term sheet provides for payment by wire transfer to an account to be designated by Cardinal Peak in the Settlement Agreement. We will ensure that the Settlement Agreement includes complete wire transfer instructions.
We note again the importance of timely payment. The term sheet provides that a failure to make either installment by the applicable due date (subject to a five-business-day cure period) constitutes a material breach and entitles Cardinal Peak to accelerate the remaining balance. Accordingly, we strongly recommend that Nexford calendar the payment due dates and establish internal controls to ensure compliance.
F. Procurement Transition
Given the termination of the MSA effective August 31, 2023, Russell Okonkwo, Vice President of Procurement, should begin coordinating the transition of Nexford's supply arrangements to alternative suppliers. While the transition period for outstanding purchase orders extends through October 31, 2023, no new purchase orders may be placed under the MSA after the termination date. We recommend that Mr. Okonkwo work with the Company's procurement and operations teams to identify and qualify alternative sources of supply in advance of the October 31 transition deadline to minimize any disruption to Nexford's operations.
VIII. Recommendation
Based on our assessment of the litigation posture, the strength of Nexford's defenses, the costs and risks associated with continued litigation through trial, and the overall economics of the settlement, Calderwood & Harkness recommends proceeding expeditiously with the formalization of the settlement on the terms outlined in the executed term sheet.
The settlement amount of $1.89 million represents a highly favorable result for Nexford. It achieves a 60% reduction from Cardinal Peak's claimed amount of $4.73 million and a 63% reduction from Cardinal Peak's total asserted damages of $5.11 million (inclusive of prejudgment interest). After accounting for all legal fees and costs, the settlement delivers net savings to Nexford of approximately $2.568 million. The settlement eliminates the risk of an adverse trial outcome, avoids the expenditure of an estimated $100,000 to $225,000 in additional litigation costs, and provides certainty of outcome for Nexford and its stakeholders — including Marlowe Asset Management Bluff Capital Partners and Ridgecrest National Bank. The settlement amount is within the pre-authorized settlement authority approved by Marlowe Asset Management Bluff, and the structured installment payment schedule should be manageable within Nexford's ordinary cash-flow cycle.
We believe the mediation process, and Judge Lindström's skillful facilitation in particular, produced a result that accurately reflects the litigation risk profile and the respective strengths of the parties' positions. We are confident that this is a resolution that serves Nexford's interests well.
IX. Closing
We respectfully request that Nexford and Marlowe Asset Management Bluff Capital Partners confirm authorization to proceed with the formal documentation of the settlement on the terms described in this letter and the executed term sheet. Specifically, we ask that Ms. Whitfield confirm, on behalf of Nexford, that we are authorized to negotiate and finalize the Settlement Agreement and Mutual Release, the MSA Termination Agreement, and the Stipulation of Dismissal in accordance with the terms outlined herein.
We would welcome the opportunity to schedule a call at your earliest convenience to discuss this report, answer any questions, and coordinate the next steps outlined in Section VII. Please do not hesitate to contact Priya Anand at (312) 555-7812 or panand@calderwoodharkness.com, or Simone Laroche at (312) 555-7834 or slaroche@calderwoodharkness.com, at any time.
We wish to express our sincere appreciation for the confidence and trust that Nexford Industrial Holdings and Marlowe Asset Management Bluff Capital Partners have placed in Calderwood & Harkness throughout this engagement. It has been a privilege to represent the Company in this matter, and we are pleased that the mediation has produced a result that we believe serves the Company's interests exceptionally well. We look forward to bringing this matter to a successful conclusion in the coming weeks.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Partner 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7812
Email: panand@calderwoodharkness.com
cc: (via electronic mail)
Douglas Carmichael, Esq., Calderwood & Harkness LLP Simone Laroche, Esq., Calderwood & Harkness LLP Lydia Tran, Chief Financial Officer, Nexford Industrial Holdings Inc. Conrad Yeung, Managing Partner, Marlowe Asset Management Bluff Capital Partners, LP
ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This document and all information contained herein are protected by the attorney-client privilege and the work-product doctrine. Unauthorized disclosure, distribution, or copying of this communication is strictly prohibited.
Amount
Cardinal Peak's Claimed Unpaid Balance | $4,730,000
Settlement Amount | ($1,890,000)
Gross Savings to Nexford | $2,840,000
Category | Estimated Amount
Calderwood & Harkness LLP — Legal Fees (through matter conclusion) | $243,670
Mediator Fees (Hon. Catherine Lindström, Ret.) | $12,500
Expert Fees (Meridian Bridge Consulting LLC — Dr. Rosenthal) | $11,200
Court Reporter Fees (depositions of Gunderson and Okonkwo) | $3,150
Filing, Service, and Miscellaneous Costs | $1,565
Total Costs Advanced | $28,415
Total Estimated Engagement Cost | $272,085
Amount
Gross Savings (from Section V.A) | $2,840,000
Less: Total Estimated Legal Costs | ($272,085)
Net Savings to Nexford | $2,567,915

ATTORNEY-CLIENT PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP

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